Fertilizer Split

February 7, 2011 09:43 AM

Crop producers aren’t likely to see much impact on their business when Cargill distributes its 64% stake in fertilizer giant Mosaic to its shareholders and debtholders in the coming months.
"There’s absolutely no change in our operations or the way in which we do business," explains Rob Litt of Mosaic Company.

Veteran fertilizer industry executive Douglas Stone, president of an eight-month-old company formed to buy fertilizer for three co-ops in Iowa, Nebraska and South Dakota, agrees with Litt.

"It’s a behind-the-scenes shift. There’s no change in management or marketing strategies," Stone says.

Moving forward. Long-term strategic and financial flexibility are two top benefits to Mosaic, the company said in its announcement of the deal.

"Cargill has been an outstanding majority shareholder," said James Prokopanko, Mosaic president and CEO, in a conference call with investors. Cargill, which has two active executives on the Mosaic board of directors, has supported the fertilizer company but let Mosaic executives run their business.

By transferring its stake in Mosaic, Cargill will keep its status as a private company while it meets the needs of charitable trusts formed through the estate planning of Margaret A. Cargill, one of the company’s largest shareholders, who died in 2006.

Cargill has been a good customer for Mosaic, Prokopanko said. "We have had a special committee that’s reviewed the independence of those transactions, ensuring that they were at arm’s-length, market rates," he told investors. "They’ll continue as a customer and we’ll sell them product,
invoice them and they will pay us, as in the past, at market pricing."

Mosaic touts its combination of North American and international production and distribution as a competitive advantage. The company is the world’s largest producer of finished phosphate products and a major potash producer. It also owns port and warehouse distribution facilities in six domestic locations and leases or contracts with facilities across the U.S. Through those, Mosaic sells to customers who resell into distribution channels or directly to farmers.

Mosaic was formed in 2004 from the combination of IMC Global and Cargill’s fertilizer businesses, part of the domestic and global fertilizer industry consolidation during recent decades, Stone says.

"With consolidation, the number of potential suppliers has whittled down," he says. "You have fewer manufacturers, and they have become very selective in how they market."

Markets are now driven more by demand than by supply. As suppliers consolidated, smaller retailers also consolidated. Some retail dealers and cooperatives have responded by forming buying groups to aggregate demand. Buying groups may be providing volume protection, Stone explains, "however the price is fairly commoditized."

In addition to securing supplies, higher-volume buyers also tend to gain broader market perspective. Risk management is still evolving, Stone says, and buying groups probably have not reached the point of providing much value in risk management.

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